.
. >>> JOINING US NOW HERE ONSET IS
JOHN KILDOFF AND A CNBC
CONTRIBUTOR THAT SPECIALIZES IN
ENERGY TRADING.
ENERGY TRADING. HE’S A GUY THAT EXPLAINS WHAT
HAPPENS TO OIL IN THE MARKET AND
BOY, ARE YOU THE GUY I WANT TO
TALK TO TODAY.
WE SEEN THE MARKETS GET BATTERED
OVER THIS CORONAVIRUS AND TODAY
SOMETHING HAPPENS WHERE THE
PRICE OF OIL GOES THROUGH THE
FLOOR AND HAS DRIVEN THE EVEN
BLOODIER DAY ON WALL STREET
TODAY.
TODAY. IS IT A COINCIDENCE THIS
HAPPENED ALONGSIDE THE
CORONAVIRUS THING OR ARE THEY
RELATED?
RELATED? >> I THINK THE CORONAVIRUS WAS
THE PREDICATE TO THIS BREAKDOWN
BETWEEN SAUDI ARABIA AND RUSSIAN
RELATIONSHIP REGARDING MANAGING
OR TRYING TO MANAGE THE OIL
MARKET.
MARKET. AND THE RUSSIANS IN PARTICULAR I
THINK HAVE SEEN THE U.S. SHALE
AND OTHER PRODUCERS NIPPING AT
THEIR HEELS IN TERMS OF MARKET
SHARE, PARTICULARLY CHINA.
AS THE RUSSIANS AND THE SAUDIS
WERE MEETING LAST WEEK TO
DETERMINE HOW MUCH OIL
PRODUCTION THEY SHOULD CUT BACK,
THE U.S. POSTED YET ANOTHER
RECORD WEEK OF OIL PRODUCTION
AND RACHEL, ANOTHER BLOCKBUSTER,
NOT ANOTHER BUT A BLOCKBUSTER
WEEK OF CRUDE OIL EXPORTS AND
ONE OF THE BIGGEST FACTORS IN
THAT NUMBER WAS A CARGO OF CRUDE
OIL FROM THE GULF OF MEXICO THAT
ISN’T THE SHALE LIGHT SWEET
STUFF YOU HEAR ABOUT BUT HEAVIER
SOUR STUFF THAT COMPETES
DIRECTLY HEAD-TO-HEAD WITH THE
KIND OF CRUDE RUSSIA SELLS TO
THEIR MAIN CUSTOMER CHINA.
SO RUSSIA SAID WE’VE HAD IT AND
THEY TOLD THE SAUDIS AS MUCH AND
THE SAUDIS THREW A HISSY FIT AND
WENT NUCLEAR OVER THE WEEKEND.
THEY SAID THEY WILL BUMP UP
THEIR PRODUCTION NEXT MONTH OVER
10 MILLION BARRELS A DAY.
REMEMBER THE BLUE LIGHT AT
WALMART?
WALMART? THEY CUT THEIR SELLING PRICE TO
THE REGIONS IN THE WORLD BY OVER
$10 A BARREL, WHICH WAS JUST A
FEAT THAT NONE OF US IN THE
MARKET HAD EVER SEEN BEFORE.
>> THE IDEA IS TO MAKE OIL SO
CHEAP THAT RUSSIA CAN’T MAKE ANY
MONEY DOING IT SO THAT RUSSIA
BREAKS RUSSIA’S WILL AND RUSSIA
GETS IN LINE WITH OPEC THE WAY
THEY WANT TO DEAL WITH THE CRIMP
AND DEMAND AND WHAT THEY WANT TO
DO WITH PRODUCTION TO ADDRESS
THAT?
THAT? >> THAT AND I ALSO HAVE TO SAY
THE U.S. SHALE IS IN THE CROSS
HAIRS WITH THAT MOVE, TOO,
BECAUSE NOBODY CAN COME EVEN
CLOSE TO COMPETING WITH SAUDI
ARABIA IN TERMS OF THEIR COST OF
PRODUCTION.
PRODUCTION. IT’S IN THE SINGLE DIGITS.
DOWN IN TEXAS WHERE THIS WHOLE
BOOM HAS BEEN SPRUNG UP OVER THE
PAST NUMBER OF YEARS, THEY
REALLY HAVE TO HAVE $50 A
BARREL, MAYBE SOME AS LOW AS
40 --
40 -- >> I WENT BELOW $30 TODAY.
>> IT WENT BELOW 30 FOR A TIME
OVERNIGHT.
OVERNIGHT. THEY GOT AS LOW AS $27 A BARREL
AT ONE POINT.
>> AS THIS PRICE GOES DOWN AND
THIS SAUDI ENGINEERS THE PRICE
TO COME DOWN, ARE THEY TRYING TO
FORCE BANKRUPTCIES IN THE U.S.
FORCE -- YOU CAN’T FORCE THE
RUSSIAN OIL INDUSTRY TO GO
BANKRUPT BECAUSE IT’S THE
RUSSIAN STATE.
RUSSIAN STATE. ARE THEY TRYING TO FORCE THEM
OUT OF THE MARKET OR CHANGE
RUSSIA’S BEHAVIOR OR BOTH?
>> THEY ARE MORE THAN HAPPY TO
GET RUSSIA BACK IN THE FOLD BUT
BUT SOMEWHAT HAPPY TO DO DAMAGE
TO THE HIGHER COST U.S. SHALE
PRODUCERS AND RING OUT EXCESS
CAPACITY.
CAPACITY. FOR YEARS NOW SAUDI ARABIA HAS
BEEN CARRYING THE LOAD IN TERMS
OF TRYING TO BALANCE THE OIL
MARKET AND KEEP PRICES AT A
DESCENT ENOUGH LEVEL FOR ALL OF
THEM TO SORT OF BE HAPPY AND
KEEP THE HOME FIRES BURNING AND
MEET THEIR OR COME CLOSE TO
MEETING OR CALL THEIR FISCAL
BUDGETS, THEIR FISCAL BREAK
EVENS FOR CRUDE OIL, NOT THE
COST OR PRODUCTION BUT THE MONEY
THEY NEED TO SUPPORT OIL OR
GOVERNMENT PROGRAMS AND KEEP
EVERYBODY HAPPY.
EVERYBODY HAPPY. >> THIS IS A TIME IF SAUDI WAS
EVER GOING TO DO THIS, THIS IS A
TIME THE WORLD IS OVER A BARREL.
THEY COULD HAVE DONE THIS AT ANY
TIME.
TIME. >> ANY TIME AT ALL.
THEY HAD THE MARKET SHARE AND
POWER.
POWER. THIS IS FOR STUDENTS OF HISTORY
THAT WATCH YOUR SHOW, THIS IS
RIGHT OUT OF ROCKEFELLER’S
PLAYBOOK.
PLAYBOOK. THE BEAUTY ROSE THEORY WHERE YOU
LOWBALL PRICE THE COMPETITION